Copper Market Outlook: Long term prospects are positive

1

Vanessa Davidson, Director of Copper Research & Strategy

Copper to the World Conference, Adelaide Convention Centre, 26th June 2018

Structure of Presentation

Demand Outlook: Copper demand has been upgraded2

Supply Outlook: Mine projects starting to move3

Current Copper Market: Transition to deficit yet to occur but widely anticipated1

4 Price Outlook: Upward pressure on prices but there are risks

Key developments since the last ‘Copper to the World Conference’

Prices have moved higher…

LME 3-M price, $/tonne

…but copper market remains in surplus

Refined copper supply demand balance, ‘000t

4,000

4,500

5,000

5,500

6,000

6,500

7,000

7,500

01 16 04 16 07 16 10 16 01 17 04 17 07 17 10 17 01 18 04 18

LME Price: Strong increase (+22%)

SD balance: Small surplus persists (~120kt)

Visible stocks(1) : Similar to last year (1.3Mt)

Demand: Upgraded reflecting EV(2) story

China: Economic transition firmly underway

Supply: Projects starting to get the go-ahead

Producer Margins: Sharp recovery (~40%)

Key developments since last year’s

conference:

Data: CRU. Notes: (1) Visible stocks = LME, Comex, SHFE, China bonded (2) EV = Electric vehicles

-300

-200

-100

0

100

200

2014 2015 2016 2017 2018 2019

Shortages still expected but size of deficits reduced and transition into deficit delayed

4,000

4,500

5,000

5,500

6,000

6,500

7,000

7,500

8,000

-300

-200

-100

0

100

200

300

2015 2016 2017 2018 2019 2020 2021 2022

$/t’000t Cu

SD Balance LME 3 Month Price

LME 3-month price and annual global refined supply/demand balance, 2015-2022

Data: CRU

Structure of Presentation

Demand Outlook: Copper demand has been upgraded2

Supply Outlook: Mine projects starting to move3

Current Copper Market: Transition to deficit yet to occur but widely anticipated1

4 Price Outlook: Upward pressure on prices but there are risks

6

Total Chinese copper demand by end-use (including scrap), 2017 vs 2022, '000 tonnes

China’s economic transition is underway but some growth is still expected

12,000

12,400

12,800

13,200

13,600

14,000

2017

Civ

il a

nd b

uild

ing

co

nstr

uctio

n

Utilit

y

Air c

on

ditio

nin

g a

nd

refr

ige

ratio

n

Co

nsu

me

r D

ura

ble

s

Tra

nsp

ort

Ma

ch

ine

ry

Oth

er

Ne

t-e

xpo

rts a

s s

em

is o

rca

ble

2022

Decreased demand

Increased demand

Data: CRU

As Chinese growth slows, the rest of the world starts to pick-up

Growth in global refined copper demand, %

Growth in world refined copper consumption and volume growth in selected 5-year periods

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

2007-12 2012-17 2017-22

China Rest of World

Absolute consumption growth in period, Mt

1.6Mt 3.3Mt

2.6Mt

1.2%

2.5% 1.7% 2.6%

2.0%

1.7%

3.8%

4.5%

4.9%

3.1%

1.7%

1.0%

0.8%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

2015 2016 2017 2018 2019 2020 2021 2022

Global

China

1.6%

Data: CRU

8

Longer term, electric vehicles will provide significant boost to copper demand

World EV copper consumption by region/country

including infrastructure, millions of tonnes

Notes: FCEV = Fuel cell electric vehicles, BEV = Battery electric vehicle, PHEV = Plug-in hybrid electric vehicle, HEV = Hybrid electric vehicle

World EV copper consumption by vehicle

including infrastructure, millions of tonnes

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

15 17 19 21 23 25 27 29 31 33 35

Infrastructure

FCEV

BEV

PHEV

HEV

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

15 17 19 21 23 25 27 29 31 33 35

Other

NE Asia

Western Europe

North America

China

Data: CRU

9

9

Global demand growth has been upgraded mainly on EV story

95

105

115

125

135

145

155

2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035

2018 consumption forecast

2017 consumption forecast

World refined copper consumption forecasts made in 2017 and in 2018, index 2014=100

+2.7MT

+1.3MT

+1.1MT

Data: CRU

0.0

2.0

4.0

6.0

8.0

10.0

0 4,000 8,000 12,000 16,000

Global GDP per capita (US$ '000 - 2010 prices)

Chinese refined copper demand: With and without EVs

Kg/capita, 1980-35

With EVs

Without EVs

Structure of Presentation

Demand Outlook: Copper demand has been upgraded2

Supply Outlook: Mine projects starting to move3

Current Copper Market: Transition to deficit yet to occur but widely anticipated1

4 Price Outlook: Upward pressure on prices but there are risks

11

Growth in global mine output is tapering off

Global mine production; ‘000t of contained copper

10,000

12,000

14,000

16,000

18,000

20,000

22,000

24,000

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Growth accelerates, 2011-16

12,000

16,000

20,000

24,000

28,000

2018 2020 2022 2024

Existing producers

Projects

Mine production by type, ‘000t Cu

CAGR:

2001-06 1.8% p.a.

2006-11 1.5% p.a.

2011-16 4.8% p.a.

2016-21 1.5% p.a.

2021-25 0.6% p.a.

Steady growth in output, 2001-11

Growth slows, 2016-25

Data: CRU

12

Reserve exhaustion remains an issue: Many key mines to cease production in coming years

0

100

200

300

400

500

2017 2019 2021 2023 2025 2027 2029 2031 2033 2035

N America S & C America Europe Africa Asia Australasia

Peak annual copper production (‘000t) vs expected end of life (year)

Mount Isa Radomiro Tomic SXEW Bingham Canyon Mutanda

Data: CRU

Pipeline of large projects remains thin…

2016

2016

2016

2016

2018

2019

2019

2019

2019

2019

2020

2020

2021

2021

2022

2022

2022

0

100

200

300

400

Operating Firm Probable Possible

Projects that have recently started-up or are due to start-up, LOM capacity >100,000t/y, ’000t

13Data: CRU

…but several smaller projects, many with Chinese backing, have been given the green light

Copper mine projects 2017-2022 with capacity of >=50,000t/y and <100,000; LOM copper production capacity; ’000t

2020

2019

2019

2018

2019

2021

2019

2018

2018

2020

2022

2020

2019

2020

2021

2021

2021

2021

2020

2022

2021

2022

2020

2021

0

25

50

75

100

Firm Probable Possible

Chinese financed Non Chinese financed

14Data: CRU

15

Plenty more investment needed: almost all uncommitted projects are required by 2035

Forecast committed copper mine production and potential from uncommitted projects*

0

5

10

15

20

25

30

35

40

45

◄Exploration projects

◄Prospect projects

◄Possible projects

◄Probable projects

◄Firm projects

◄Operating mines &

* Committed production after disruption; Uncommitted before any adjustments

(Mt)

firm expansions

Data: CRU

1616

Firm

Probable

Possible

Prospect

On Hold

S.Am

11.1 Mt

N.Am

4.6 Mt

Eur

1.3 Mt

Afr

2.2 Mt

Asia

4.3 Mt

Aus

2.1 Mt

= Capacity of

projects by

region and

status

Most potential production is located in South America, especially Chile…

16Data: CRU

Mine projects by region and status and with start-up dates of between now and 2035

Structure of Presentation

Demand Outlook: Copper demand has been upgraded2

Supply Outlook: Mine projects starting to move3

Current Copper Market: Transition to deficit yet to occur but widely anticipated1

4 Price Outlook: Upward pressure on prices but there are risks

17

-2,000

0

2,000

4,000

6,000

8,000

10,000

12,000

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22

2017 US$/t

Margin at 50th centile

Producer margins at 90th and 50th centiles of net of by-product cash cost curve, 2017 US$/t

Robust margins should assist new project development

Margin at 90th centile

Real cash price

Average margin between 50th & 90th centiles

18Data: CRU

Prices will move higher but risk of substitution exists

19

0

2,000

4,000

6,000

8,000

10,000

12,000

1908

1918

1928

1938

1948

1958

1968

1978

1988

1998

2008

2018

Actual 10 year average

Data: CRU, LME. Note: *LME cash or equivalent

Real copper prices*, 1908-2018, $/t (2017$) Copper to aluminium price ratio

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

1909

1919

1929

1939

1949

1959

1969

1979

1989

1999

2009

2019

19

Global copper consumption growth to decelerate in short-term due to Chinese economic restructuring…

…but electric vehicles have led to more positive longer term outlook for global copper demand

Large sized project pipeline still thin but small scale projects are moving

Cathode market well supplied at present. Deficits expected in early 2020s but they are smaller than a year ago

Positive long term outlook. High prices needed to attract investment, but risk of substitution if prices rise too high

Conclusions

20Data: CRU

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